Do Households Actually Generate Rational Expectations? “Invisible Hand” for Steady State

Taiji Harashima

MPRA Paper from University Library of Munich, Germany

Abstract: The rational expectations hypothesis has been criticized for imposing substantial demands on economic agents, and this problem has not been sufficiently solved by introducing a learning mechanism. I present a new approach to this problem by assuming that households behave on the basis of not the rate of time preference but the capital-output (income) ratio. I show that households can equivalently reach and stay at a steady state without doing anything equivalent to computing a complex macro-econometric model. Although households are not required to implement anything difficult, they look to be behaving fully rationally, led by an “invisible hand.”

Keywords: Capital-output ratio; Rational expectation; Steady state; Sustainable heterogeneity; Time preference (search for similar items in EconPapers)
JEL-codes: D84 E10 E60 (search for similar items in EconPapers)
Date: 2018-09-06
New Economics Papers: this item is included in nep-mac
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (5)

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Persistent link: https://EconPapers.repec.org/RePEc:pra:mprapa:88822

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